Capital Gains Tax

Selling of a property particularly capital assets can result in capital gains or loss. When the capital asset is sold at a price higher than the cost of the property including depreciation cost or depletion cost then, the seller would realizably incur capital gain. The reverse occurs in capital loss. A break-even may occur if the cost of the property and the price are the same. Although potentially break-even occurs in capital selling, it could have no effect in taxable transactions of an individual taxpayer.

Capital assets refer to assets that can potentially provide gains. These can be properties, stocks, bonds, and precious metals and gems. The gains or losses out from the transactions of these capital assets can be subject to taxation. Thus, any gains or losses that result from the sale of such capital assets can be calculated with the capital gains tax rate to come up with the capital gains tax. However, the computation of the rate towards the gain or the loss as well as the derivation of capital gains tax may vary.

The amount of capital gains tax varies according to the period the asset has been held. Assets that have been purchased and under the custody for more than one year and then sold can be subject to lower capital gains tax than assets which are sold within one year of purchase and custody. Taxation for short-term capital gains can be higher and the taxed rate may tantamount to the ordinary income tax rate.

The reason capital gains can be higher when the assets are sold within the year after purchase is because the depreciation cost has not been incurred or are just minimal compared to assets that have been kept for over a year after purchase and then disposed.

However, other capital assets appreciate its values even if they are held for over a year. This can happen in precious metals and real estate as well as in stocks and bonds. Prices for precious metals can skyrocket when they are in high demand. The price in the shares of stocks may also rise due to several factors, primarily of investor’s confidence and the internal strength of the company that underwrites the stocks. Markets for these capital assets are volatile and are prone to fluctuations.

Capital gains can be higher when disposing a real estate property which normally has no depreciation cost. The price for real estate may appreciate depending on several factors. The capital gains of real estate can reach to 100% or more from its original acquisition cost and other related costs. The high potential earnings in real estate could be the reason real estate is among the most viable investment opportunities for companies and individuals to venture in.

The capital gains tax rates that can be charged to the capital gains or losses after the sale of capital assets vary widely. It may take one to find a progressive tax table in capital gains tax system to know what rate can be charged to a particular capital gains amount.

The capital gains tax rates may also differ from country to country. Other countries do not have capital gains tax. While other countries treat the gain on the sale of capital assets as part of income tax.

Countries that do not have capital gains tax could include: Belgium; Bulgaria; Mexico, Netherlands; Singapore, Hong Kong; and other tax haven countries.

Some countries that have flat rate in capital gains tax are Brazil, Poland, Italy and China.

Meanwhile other countries that treat the gains on the disposal of capital assets as integration to ordinary income are Switzerland, Thailand and New Zealand.

Capital gains tax of countries that have it can have exemptions. Canada, United States, Germany, and United Kingdom are some of the countries which have capital gains tax laws.

The treatment of capital gains tax as well as its computations may also depend from every nation that imposes it. Different treatment may also apply with loss on sale of capital assets.